The View Beyond The ‘Cliff’: Blue Skies

247Bull.com Editor: Even if an agreement is not reached by the current Congress, the next Congress that convenes in January could still choose to avert the worst effects of the fiscal cliff/ slope. As James Nash pointed on 247bull.com out back in November, “US businesses are holding off, and cutting back, on investment in new projects, equipment and hiring due to uncertainty over future tax policy”. However some clarity regarding future tax policy should help to restore business confidence enabling US firms to begin deploying their huge cash reserves, something which should prove positive for both the US economy and financial markets.

Reprinted from: The Globe And Mail
By, David Berman

One of the big concerns about the so-called “fiscal cliff” is that even if Washington agrees on a budget before the end of the year, averting automatic tax increases and spending cuts, taxes are still likely to go up and spending is likely to go down. But there could be some good news here.

BCA Research has taken a sunny view, arguing that economic growth should rebound in 2013 even if the economy takes a step back early in the year. After all, a budget deal that extends middle-class tax cuts and avoids the most dramatic spending cuts will nonetheless slow U.S. growth to about 1 per cent in the first quarter of next year. And a resolution to the other parts of the “fiscal cliff” will likely set up the rest of the year for stronger growth.

“In particular, the growth picture in 2013 is likely to benefit from the re-acceleration in business investment, which appears to have been adversely affected by recent fiscal uncertainty,” BCA Research said.

Improvements in the housing market, already underway throughout most of 2012, along with better household finances should also help.

This sort of optimistic thinking on the U.S. budget seems to be in short supply these days. Worries about the “fiscal cliff” have been hanging over the stock market for some time, but the concern went mainstream after the U.S. Presidential election, when it became clear that more political gridlock in Washington diminished the chances of a budget agreement before the end of the year.

Read the full article at: The Globe And Mail Online

Article courtesy of http://bcaresearch.com

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>